[tahzeeb]

got it!!!!!!!!!

[tahzeeb]

Tutor, thanks a lot for the valuable inputs!! I’m almost through with the confusion. Just a small part left to be cleared out. Referring to your Answer no. 2, SFP should ONLY show the capital part of liability (both current and n/current). But the moment we credit the accrued interest to the liability account, the capital part is increased by that amount and the total is reflected accordingly in SFP. How can we show the sole capital part then? Please help.

[tahzeeb]

After the end of first period, we incur an interest expense. What is the journal for that?

Dr Interest Exp
Cr Interest payable OR Cr Lease payable

This is where Kaplan makes me confused. It shows that this interest is added to the capital amount carried forward. And, it shows that current lease liability is the full payment amount due beginning of next year. Why is that?

Secondly, When we make the payment at the beginning of the next year, what is the capital portion of the payment? Is it the balancing figure after deducting the interest accrued last year or the interest that is to be accrued at the end of the current year?

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